MasterCard earnings blow away expectations

The financial giant says debit card spending helped it achieve double-digit earnings and revenue growth.

By Benzinga Nov 2, 2011 12:16PM

By Jonathan Chen, Benzinga

MasterCard (MA) shares soared almost 8% in early trading Wednesday after the credit card processing company reported better-than-expected earnings.

The company has blown out earnings estimates for two consecutive quarters.

MasterCard reported $5.63 per share in profit on $1.82 billion in revenue. Wall Street had expected $4.82 per share on $1.71 billion in revenue. The company said the growth was helped primarily by debit card spending as consumers continued to favor the cards over other types of payment.

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This does not even take into account the digital wallet and Near Field Communications mobile payment system that MasterCard is already well positioned in.

"Economic indicators across the world remain mixed, with the uncertainties in Europe and the United States weighing on sentiment and dominating headlines," said Ajay Banga, MasterCard's chief executive. "Nonetheless, we continue to focus on displacing cash and winning share across markets."

The results continue to prove that the Durbin amendment, which capped debit card fees for merchants, has had little impact on MasterCard's operations and ability to generate incredibly strong earnings and revenue growth. The company saw an 18.1% increase in gross dollar-volume purchases, to $844 billion. It also saw an increase of 20.5% year over year in processed transactions.

MasterCard is sitting near 52-week highs, and shares are up 60% this year, far outpacing the S&P 500 and competitor Visa (V). Visa has returned 32.21% this year so far.

MasterCard's business model has proved to be one of the most effective and rewarding for shareholders in quite some time. The company was able to grow earnings 42.8% year over year, and revenue grew 27.2% year over year, which is incredible for a company its size. It is not expensive either, trading at 16 times projected forward earnings. It also offers a fractional dividend, but shareholders are in this name for capital appreciation, not dividend income.

The company has also generated an incredibly strong 43.8% return on equity and a 23.6% return on assets. Compare that to Visa, which has a 14.2% return on equity and a 10.6% return on assets. MasterCard has $3.6 billion in cash on the books and zero debt.

MasterCard has continued to prove, since its initial public offering in 2006, that it is the dominant leader in this space, with more growth than Visa and a stronger-than-expected international arm. After this earnings report, one could definitely make the case for saying: "Relax, you have MasterCard."


Traders who believe that U.S. consumers are spending more and more with credit cards might want to consider the following trades: 

  • Add to MasterCard on any dips. It's clear that MasterCard has continued to prove the doubters wrong and will continue to do so.
  • Traders may also want to look at Visa, which reported earnings on October, 26. They could see a boost from MasterCard's earnings.

This continues to be bearish for checks, cash and other forms of currency. As the years continue, older forms of payment continue to be phased out. England is going to get rid of checks altogether in the next few years and it looks as if the U.S. is going to do the same as well. 

Neither Benzinga nor its staff offers investment advice, nor do they recommend that you buy, sell or hold any security. 

More from Benzinga:

Nov 2, 2011 3:52PM

Who could not make money from charging every type of fee under the sun for everything ?  Debit card charges, that charge you 2.50+ for taking out your own money, so on a 20.00 cash withdraw that is over 10% charge on your own money..... I go with cash period, not charging me for using my own money.

The credit cards, banks get money  @ .25% from the federal reserve and charge 4.00%-21.00+ yea that is very easy to make lots of money with a system like that going on..... I like at the end of this article they said the US is going to phase out checks and other outdated ways to pay,, so the consumer will be charged a banking fee for everything they buy period. That would be a corporate tax on everything would it not ???

Nov 2, 2011 4:12PM
Lets make difference in there pockets on black friday, All american brand that are made outside the U.S.A lets no buy them. Imagine Apple, Barbie,
Hot Wheels, Sony, Microsoft they would here us then when monday stock open and there reporting lost of millions of dollars that cash is going to be still in america. Until American brand Are made here! And Start using Cash
see how bank start reporting lost and all % on credit cards and all will drop.
let show them where its gonna hurt.
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